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Healthcare Investing: In Innovators We Trust, Up to the Future We Light

When people talk about “healthcare,” they probably refer to pharmaceuticals and health insurers, but the sector also covers life sciences and biotechnology, medical equipment manufacturers and services, hospitals, distributors, etc. My firm conducted a due diligence trip to China and visited many scientists of these fields in Beijing, Shanghai, and some southern cities in January 2014, and witnessed how they design their businesses, research centers with life-saving innovation, and subsequently integrate healthcare equipment and distributors efficiently in order to price their products competitively, compared with established market economies in Europe and North America. There is massive, non-stop, life-saving innovation going on in the sub-industries such as protein-antibody drugs and medical equipment.

Life sciences and biotechnology: Life sciences have become increasingly quantitative as new technologies in mathematics and computational science facilitate the collection and analysis of vast amounts of data ranging from complete genomic sequences of organisms to satellite imagery of forest landscapes on continental scales. The latest breakthroughs in the field of life sciences are featured by the shift to personalized medicine and the application of big data analytics.

Medical equipment: Most recent medical technologies include wearable technologies for fitness, aging-in-place technologies, and real-time monitoring, which will tackle the problems stemming from an aging population, and facilitate a digital transition to a more consumer-centric approach to healthcare. As pharmaceutical companies accelerate the pace of technology innovations, end-consumers, i.e., actual patients are able to address their health issues much more conveniently. One of the target companies on our due diligence list is dedicated to design their so-called “station for doctors” and “station for nurses” utilizing Big Data and image compression technology to gather patients’ personal data on health conditions in order to monitor the status of recovery on iPad and discover new solutions for treatment.

Hospitals: Hospital and ambulance care center innovation efforts almost always focus on cost reduction. In this regard, restoring function and mobility, and surgical solution, for example, a company focusing on the research and installation of medical robotics for hospitals is exhibiting absolute edges, which also indicates the trend of the time.

The biggest driver for the development and growth of healthcare sector is the demographic shift that is underway in populous countries and regions, the willingness of hospitals to institute a culture of quality, and health consumers’ ability to pay out-of-pocket for the costs of drugs and treatment. From another perspective, the increasing number of medical professionals going to receive education at top training centers worldwide and the rapid emergence of privately financed specialty hospitals also features the growing demand in the global healthcare sector.

The government of many countries are exploring options that could dramatically change the landscape in medicine; they are now looking to serve more as regulators of healthcare system than as providers. One of their most critical aims in this evolving role is to develop comprehensive provider systems, and to encourage the expansion of servicers.

The healthcare sector is not inherently superior to other sectors; however, it has unique attributes which can lead to outperformance depending upon economic, market, and industry-specific conditions:

In general, the healthcare sector is less economically sensitive and less volatile than the broad market. In some countries, the government pays for full costs; in some others, the government is exploring alternatives for its citizens to receive better treatment.

The healthcare sector is featured by growth companies; technical advances, the emergence of personalized medicine, and the fact that people are living longer with chronic disease, indicate investing in healthcare will realize generous and sustainable returns.

Once a breakthrough passes FDA, the business can be highly profitable at minimum costs.

Final Thoughts

Although healthcare is often organized by geographies, the issues and concerns are truly global. Healthcare is a hot and often controversial topic for many years to come.

Healthcare deals are with relatively heavy government involvement; legislation can positively or negatively impact the sub-industries of healthcare. In many developed countries, the government assumes both healthcare payers and providers; therefore, understanding the role of government and potential policy is vital when researching healthcare companies.

Investing in healthcare sector requires deep industry experience, insight and technical support. On one hand, the investment managers must be able to help target companies to adopt best practice operational models and cost management capabilities, i.e., the value add of private equity and venture capital professionals; on the other, they also need to make sure the Boards have the right skills, capabilities, and information to lead effectively. An independent advisory board with expertise in the bioscience and global healthcare is indispensable. I am very proud that the due diligence team of my firm is comprised of a group of PhDs in life sciences who also have worked across regional health ecosystems.

Healthcare firms are frequently targets for lawsuits, particularly those engaging in the research and production of drugs. The changes in FDA requirements for drugs and medical services are more frequent than most other sectors which are also beyond prediction. My team has tried a variety of applications to study legal concerns and share information on latest FDA policies; so far, WeChat is one of our favorites since we can connect to the pharmaceutical companies and community pages and we are also able to convey new ideas to our LPs via the same platform.

2 comments on “Healthcare Investing: In Innovators We Trust, Up to the Future We Light”

I hardly leave a response, but I browsed some comments here. I do have 2 questions for you if you don’t mind. Is it only me or do some of these comments look as if they are left by brain dead folks? 😛 And, if you are posting on other places, I would like to follow anything fresh you have to post. Would you list of all of all your social sites like your Facebook page, twitter feed, or linkedin profile?

Hey there – thank you for your interest! I have a weekly column titled “Investment Conversations with Chenjiazi” which is sponsored by a firm headquartered in CA. I do not use public social media such as facebook, but I do have a LinkedIn page for business purposes (www.linkedin.com/in/chenjiazizhong/)..Feel free to connect if any thoughts.